Misconceptions of payment orchestration and how it can drive value across the payments landscape

Blog· 3min March 6, 2024

Over the last few decades, banks and financial institutions have created large technology estates to support a range of different types of payments to meet their customers’ needs. These have become more complex over the years as technical, customer and regulatory requirements evolve, leading to something of a Spaghetti Junction with multiple legacy systems and ancillary systems all connected to one another through various middleware layers.  

The resulting complexity causes a number of problems. It’s costly to run and maintain for a start, while upgrading these estates to accommodate new types of payments and meet customer expectations brings additional expense, time and complication.

On top of this, handling payment exceptions often requires manual intervention, causing delays and inefficiencies, even if the flow is relatively simple and straightforward as is the case for domestic payment flows. For many scenarios, these legacy payment systems are unable to automatically handle these exceptions.  

In order to overcome these challenges and mordernise technology stacks for future payment propositions and requirements, simplification is required. Therefore, many financial institutions are looking to orchestration solutions as they create event-driven, micro service-based architectures that provide the agility they need to drive them on their payment modernisation journeys.   

Orchestration is a key tool for supporting payments

Payment orchestration solutions can help a bank simplify its technology estate by connecting all of its legacy and ancillary services and systems through an integration layer. This enables more effective change management, and better control over payment processing steps and outcomes, which can be tailored to all of the bank's different customer propositions and payment flows.  

In the past, orchestration of payment processing wasn’t sufficently considered as a vital capabilty and without leveraging its potential payment estates became huge, bespoke, multi-functional black boxes where all payments would be processed through.  

Now, orchestration is much more of an explicit, standalone capability  that banks and software providers are using. Moving towards this event-driven, micro service-based architecture requires end-to-end visibility and flexible management of payment flows that are centred on the principle of orchestration. These systems represent an efficient, adaptable and transparent infrastructure that is easy to add or  remove components without causing unnecessary complexity – much more appropriate for the fast-changing payments landscape. 

Misconceptions around orchestration in payments

There are some misconceptions around what the term ‘orchestration’ refers to in payments that have muddied the water somewhat. As explained above, orchestration used to be something that goes on behind the scenes, but is now an explicit, standalone capability of new banking technologies.  

It’s also a term that’s been used in recent years across the cards space as a solution for banks supporting merchants, managing the entire cards process to support multiple card issuers, schemes and methods.  However, the orchestration that we are referring to here is in the account-to-account payment space, where banks want to offer their customers many different payment propositions whilst simplifying their technology estates.   

How orchestration can drive efficiency and ROI

Payment orchestration solutions consist of a single integration layer for all payment and core banking systems. This allows for the streamlining of payment system management, while also cutting down on the time and expense involved in payment flow changes. Through investment in orchestration solutions, a financial institution can put itself in a better position to react to market changes or new customer demands, as it will be able to implement the necessary processes and flows quickly and at a lower cost. 

Additionally, orchestration solutions allow payment exceptions to be automated, eliminating the need for complex payment hubs for domestic payments. This simplification of payment pathways brings cost savings through efficiency. This reduces the complexity of the bank’s payments estate, and therefore the cost of managing and running their technology stack.     

Orchestration as an enabler for instant payments 

When it comes to global instant payments, such as Faster Payments Service (FPS), Sepa Instant, RTP and FedNow, an orchestration layer can help banks to maintain high service levels even in the event of failed payments. Take for example the case of an incoming payment which has been accepted by the bank, having matched all the validation, but then hasn’t been posted to the customer’s account. This would usually result in an exception that would have to be manually resolved.  

In the vast majority of these cases, the cause of these issues are highly predictable. A payment orchestration solution can intelligently try to address these common issues – for instance, by looking up information on another system to enrich the payment data, putting the payment step on hold until the issue is resolved, or automatically returning the payment – resulting in fewer failed payments and fewer unhappy customers.  

In markets like the US, where instant payments are just beginning to come into the mainstream, these solutions can be invaluable. With payment orchestration layers in place, complex flows can be streamlined and automated, reducing failed payments and the impacts on customers.

Using orchestration to adapt to regulations

With the momentum we have seen in recent years in various different markets to rebuild central payment infrastructures – such as RTP or FedNow in the US, and the New Payments Architecture in the UK – banks are having to rethink their payment technology estates and ensure that their architecture is future-proofed against new regulations.  

If banks have an effective orchestration layer in place, then changes to central infrastructure don’t require complex, impactful and costly changes to the whole of the technology stack. Any future regulatory changes, similarly, won’t need financial institutions to overhaul the way their central systems work.  

How payment orchestration will develop in the future

While they largely cover domestic payments at the moment, in theory orchestration layers could evolve to interact with all payment gateways and support any payment process in the future. There's no technical blockers to stop this from happening, and as banks get to grips with the first stages of orchestration – and have clear proof points of its benefits – they will begin to look for other use cases to apply it to.  

And that's the really exciting thing about orchestration; we don't yet know what the forthcoming use cases of this technology will be because they haven't been dreamed up yet. But like people didn't realise that they needed colour TV until it was invented, there are bound to be paradigm-shifting innovations that will define the future of payments coming somewhere along the line. So while orchestration is something that all banks and financial institutions should be looking at to solve their current payment challenges, they should also understand that it will provide a foundation for their future payment products and services.  

Written by

Scott Galley Head of Product - Transaction Management